With all the headlines discussing tariffs, nontariff trade barriers and animal disease issues, it is easy to overlook the effect that exchange rates have on U.S. meat export levels. Yet a stronger U.S. dollar in recent months has played an important role in the slowdown in beef exports through the first quarter of 2019.
In early February 2018, the dollar reached its weakest level since 2014. Since then, the index of the U.S. dollar against major currencies has strengthened nearly 9%. While this increased purchasing power for U.S. consumers, it made U.S. products — including beef — more expensive in many key export markets.
Relative to the first quarter of 2018, the dollar strengthened by 8% against the Euro and 5% against the currencies of South Korea, Canada and Taiwan for the first three months of this year. Although the increase was less pronounced in Japan and Mexico, a slightly stronger dollar against these currencies also provided trade headwinds.
Dollar value impact
The graph shows how strongly correlated moves in the U.S. dollar have been recently relative to changes in U.S. beef export value. Note that the exchange rate featured in the chart is the inverse of how it is typically displayed, in order to better see the relationship of a stronger U.S. dollar to weaker export values.
After posting value growth relative to the previous year for 10 consecutive quarters from mid-2016 through the end of 2018, beef export value declined by 2% in the first quarter of 2019. However, the U.S. dollar was nearly 6% stronger than the previous year against an index of major currencies, implying that foreign consumers still spent more on U.S. beef in foreign currency, just not in terms of U.S. dollars.
While it is certainly possible that the sharp growth in demand for U.S. beef in overseas markets is taking a breather, separating the currency effects from the bottom-line total provides encouragement that the demand drop is not as large as it seems.
While Japan’s recent announcement to accept beef from U.S. cattle of all ages and the removal of Canada’s retaliatory tariffs on prepared beef items certainly are wins for the future of U.S. beef exports, trade challenges remain.
Growing tariff discrepancies between key markets in Asia for U.S. beef relative to Australia and New Zealand as members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership have deservedly received much attention. The reluctance of the European Union to include agriculture in its trade negotiations with the U.S. also is a frustration.
And the U.S. dollar, which has consistently been near its strongest level since 2003 in recent weeks, can be added to the list of trade challenges.
While the demand for U.S. beef, particularly higher quality cuts, remains strong among domestic consumers as well as in most major export markets, continuing to increase shipments of beef remains an important struggle for all in the beef industry.
Brown is a livestock economist with the University of Missouri. He grew up on a diversified farm in northwest Missouri.